Annual Household Income

Figure 2.2

Higher income equals more dining-out occasions, 2000. (Source: Meal Consumption Behavior, National Restaurant Association.)

Supply

The key factors of supply that concern us are land and its produce, food, and labor. Capital is a third factor of production, but we will reserve discussion of it until the lodging chapters. The patterns of access to public markets discussed there can,

however, be applied to the hospitality industry in general.

LAND AND ITS PRODUCE

Land and the things that come from the land are classically one of the major factors of production in economics. In hospitality, we are concerned with land itself, as well as with a major product of the land, food.

Land. Because hospitality firms need land for their locations, certain kinds of land are critical to the industry. Good locations, such as high-traffic areas, locations near major destinations, or locations associated with scenic beauty, fall into this category.13 Furthermore, they are becoming scarcer with every passing day for at least two reasons: the existence of established operations and environmental pressures.

INDUSTRY PRACTICE NOTE 2.3

Is the Middle Class Shrinking?

Most North Americans think of themselves as middle class, whatever their actual income is. In the short term, people’s incomes are growing and will continue to grow. After years of salary stagnation in the early 1990s, the typical U.S. household’s income rose by 3.5 percent to $38,885 in 1998. Over a longer time period, from 1990 to 1998, the average household’s income increased 4.1 percent. These averages, however, conceal certain trends. In 1998, the average income of the poorest fifth increased by only 2.4 percent, about the same amount that the top fifth increased. These changes are not as drastic as they have been in previous years, where increases in the upper quintile were much higher.

Defining Middle Class

American Demographics (www.demographics.com/Publications/AD) proposes three definitions of middle class: (1) those with incomes ranging around the national average ($25,000 to $50,000), (2) a broader group with incomes of $15,000 to $75,000, and (3) households with incomes between 75 percent and 125 percent of the median. Although the numbers that emerge from these three categories differ, they all point to a similar conclusion: The proportion of the population that is middle class is decreasing, but with a growing total population, the absolute number of middle-class households is increasing.

The following table shows changes in the number of U.S. households with incomes in the middle range of $25,000 to $75,000 throughout the last three decades. The size of the middle class, in relative terms, decreased from the 1970s into the 1980s but has since shown moderate decreases. The real dynamics seem to be in the two far right-hand columns. Here, we see the number of households increasing significantly during the same period and the proportion tripling. This suggests a growing number of people are stretching the definition of “middle class” by becoming wealthier. To balance that view, however, it is worth remembering that the number in the lower-income category (far left-hand column) increased by 8.1 million people just since 1994,

To deal with the first of these, the simple fact is that most of the best high-traffic locations are already occupied. What creates good locations are changes in the transportation system and changes in population concentrations. The building of new highways has slowed greatly compared to the time when the interstate highway system was under construction. As a result, fewer new locations are being created in this way.

In recent years, we have seen restaurant chains acquired by other restaurant chains principally in order to obtain their locations for expansion. One of the factors that led QSR chains to seek locations in malls some years ago was the very shortage of freestanding locations we are discussing.

A second reason for the growing scarcity of locations is environmental pressure. Location scarcity is especially severe in locations such as seashores or wetlands, which are often zoned to prevent building—especially commercial building—in scenic or environmentally sensitive locations. Environmental pressures do, however, go beyond scenic locations. Restaurants, particularly QSRs, are meeting more resistance because of the

49

Supply 51

noise, traffic, odor, roadside litter, and crowding that can accompany such operations. Restaurants have been “zoned out” of many communities or parts of communities.

On balance, the greater pressure comes from the impact of present locations being occupied, but, for both reasons discussed previously, land in the form of good locations is a scarce commodity.

Food. Although the cost of food may vary from season to season, for the most part these variations affect all food service competitors in roughly the same way. Food service price changes would have to reflect any change in raw food cost. Food supply conditions do not suggest any major price changes in North America in the foreseeable future, although weather conditions or temporary shortages of certain foods can always drive up some prices in the short term. We should note, however, that major climatic changes, such as those that could be brought on by the greenhouse effect and the Earth’s warming, do pose a longer-term threat to world food supplies.

TABLE 2.2

Employee Turnover in Food Service

Source: National Restaurant Association, “Restaurant Industry Operations Report,” 2004.

for instance, with “baggage porters and bellhops,” where bell staff are considered along with a number of other, somewhat similar jobs in transportation. Similarly, people working in housekeeping are included in the category of “janitors and cleaners, including maids and housekeeping cleaners.”16

Two categories related to the travel industry are travel agents, slated to grow 3.2 percent (a direct result of changes taking place in the travel industry), and flight attendants, a group projected to increase by 18.4 percent.17

The growth that is expected to occur in these various segments of the hospitality industry means that there will be continued opportunities for hospitality graduates. However, this takes on a different meaning when one adopts a management perspective. Wherever you observe a growth figure higher than the average of 15 percent for